On Dec. 31, 2009, Kang Jung-won, then chairman-designate of KB Financial Group, abruptly resigned. With his official appointment just a week away, the situation was urgent enough to convene an emergency board meeting. He cited "criticism that the chairman selection process had been unfair," but in practice it was the result of a high-intensity inspection by the Financial Supervisory Service (FSS).
Kang had several problems. The investment in Kazakhstan's Bank CenterCredit (BCC) that he led generated losses of nearly 1 trillion won, and his branch task-separation system was a complete failure. He preached "International Best Practice (IBP)" with his mouth, but in reality he formed a community of interests with outside directors to protect each other's tenures.
The FSS inspection, however, also drew much criticism. It obtained or sealed data from 13 computers belonging to key department heads at KB Kookmin Bank. There was even talk that the FSS, which has no search-and-seizure authority, "took entire computers away."
Kang's two drivers and his vehicle operation logs also became targets of the investigation. One staff member who took part in the inspection confided to this reporter years later, "Back then we learned about a certain person's womanizing." Because it was talk over drinks, the truth was never verified, but it was hard to shake the thought that it had gone far beyond the FSS's scope of duties.
The reason for bringing up a story more than 16 years old is the FSS's recent investigation into bank philanthropy. Following its on-site probe into the social contribution activities of Woori Financial Group and Woori Bank, the FSS is now launching the same investigation into KB Financial. The stated purpose is to examine whether the philanthropic activities were carried out in line with their intended goals. The agency reportedly is looking into brand and product advertising amounts, annual disbursements, and donation records.
The current Act on the Establishment of the Financial Services Commission allows the FSS to inspect and sanction financial firms regarding their business and asset conditions. The use of the term "business of financial firms" makes wide-ranging inspections and investigations possible.
But it would be problematic to interpret this as meaning authorities can do whatever they please from start to finish. It is more accurate to view it as covering matters related to the soundness of financial firms and market stability. Is an individual's private life or a bank's philanthropy something that lowers a bank's capital adequacy ratio and shakes the financial markets? Even after thinking it over two or three times, it is hard to agree.
A former FSC chairman expressed frustration, asking, "Why is the FSS even investigating philanthropic activities?" Last year, banks spent 2.156 trillion won on social contribution activities. Shinhan Financial's "Just Dream" program, praised by President Lee Jae-myung, and Woori Bank's 7% cap on credit loan interest rates are representative examples of bank philanthropy. What about the skating sponsorship KB Financial has run since 2008? Hana Bank's mid-rate loans and its "Success Ladder Loan" for small business owners also carry the character of both inclusive finance and philanthropy.
Perhaps it is my ignorance, but I have never heard that supervisory authorities in the United States and Europe have investigated or inspected banks' philanthropic activities. Philanthropy is, after all, a company's freedom. Combing through the detailed line items to determine whether they are used for marketing is enough to raise the suspicion that, regardless of actual intent, the authorities are trying to intervene in philanthropy with a specific purpose in mind.
I am concerned about the "politicization" of the FSS. Counting only from the time of former KB Financial Group Chairman Hwang Young-key, controversies over authorities intervening in financial firms' personnel decisions have been more than one or two. Each time, there was talk of outside pressure. The prevailing analysis was that behind Kang's resignation, too, lay a figure handpicked by the Blue House.
A considerable number of those forced out after receiving heavy sanctions from the FSS had their cases overturned by the Supreme Court. Even under the new administration, the FSS put the brakes on the personnel decisions for the chairman of BNK Financial and the president of Jeonbuk Bank, but no facts emerged that would overturn the situation.
Uncertainty in the financial markets is high. The won-dollar exchange rate is hovering above the 1,500-won-per-dollar level, and the concentration in the stock market along with expectations of a base rate hike in the second half are heightening anxiety. Examining changes in supervisory policy to support advanced industries and the risks that follow is also the FSS's job.
The authorities' philanthropy investigation has neither justification nor practical benefit. The market situation is not so leisurely. I hope they will ponder the reason the industry is saying, "It would be nice to introduce a responsibility-structure chart at the FSS."
